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2024 (1) TMI 846 - AT - Income TaxTDS u/s 195 - payments made to non-residents w/o deducting TDS - disallowance u/s. 40(a)(i) - Assessee simply claimed that payment made to non-residents is not fees for technical services and provisions of section 195 is not applicable - HELD THAT - We are of the considered view that payments made by the assessee to non-residents for rendering installation and testing services fall under the provisions of section 9(1)(vii)(b) of the Act and thus, not liable to tax in India. Since, income of non-resident is not taxable in India, the assessee need not to deduct TDS u/s. 195 of the Act on payment made to non-resident service providers. Since, the assessee is not required to deduct TDS u/s. 195 of the Act, the question of disallowance of said payments u/s. 40(a)(i) of the Act does not arise. CIT(A) after considering relevant facts has rightly deleted additions made by the Assessing Officer and thus, we are inclined to uphold the findings of the ld. CIT(A) and reject grounds taken by the revenue for all assessment years. Disallowance of bad debts - AO disallowed bad debts claimed on the ground that the assessee has claimed exemption u/s. 10A of the Act for earlier assessment years and income pertains to bad debts was not offered in the computation of total income for all previous years and thus, opined that conditions prescribed u/s. 36(2) of the Act are not satisfied - HELD THAT - As not in dispute that income pertains to bad debts written off has been offered to tax in earlier assessment years. Further, whether the assessee has paid tax or claimed exemption under certain provisions of the Income-tax Act does not matter, but what is required is income pertains to said bad debts has been credited in the profit and loss account in earlier years or not. Since, the assessee has offered income pertains to bad debts written off in earlier years and also write off of bad debts in the books of accounts, in our considered view, conditions prescribed u/s. 36(2) of the Act are satisfied. Therefore, we are of the considered view that, the Assessing Officer is erred in disallowing bad debts u/s. 36(1)(v) r.w.s. 14A of the Act. CIT(A), after considering relevant facts has rightly directed the Assessing Officer to verify whether the amounts claimed as bad debts were included in the income for earlier assessment years. Thus, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the revenue. Disallowance of provision for expenses - AO said provision made for expenses is not ascertained liability and contingent in nature and thus, cannot be allowed as deduction - CIT(A) sustained additions made by the AO - HELD THAT - If a liability is arising in a particular accounting year, deduction should be allowed although the liability may have to be qualified and discharged at a future date. In the present case, the assessee could not file any evidences to prove that the liability has arisen for the impugned assessment year for services availed in the course of business of the assessee. Since, assessee could not file any evidence and also basis for quantifying amount of provision made for expenses, in our considered view said provision can only be treated as unascertained liability, which is not crystallized during the impugned assessment year. Therefore, we are of the considered view that there is no error in the reasons given by the AO and the ld. CIT(A) to disallow provision for expenses and thus, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the assessee for both assessment years. Belated employees contribution to PF ESI u/s. 36(1)(va) - CIT(A) deleted additions made by AO - HELD THAT - As by following the decision of Checkmate Services P. Ltd. 2022 (10) TMI 617 - SUPREME COURT we are of the considered view that belated payment to employees contribution to PF ESI cannot be allowed as deduction. CIT(A) without appreciating relevant facts simply deleted additions made by the Assessing Officer. Thus, we reverse the findings of the ld. CIT(A) on this issue and uphold the additions made by the Assessing Officer towards belated payment to PF ESI u/s. 36(1)(va) r.w.s. 2(24)(x) - Decided against assessee.
Issues Involved:
1. Disallowance under Section 40(a)(i) of the Income Tax Act. 2. Disallowance of bad debts. 3. Disallowance of provision for expenses. 4. Disallowance of employees' contribution to PF & ESI. Summary: Disallowance under Section 40(a)(i) of the Income Tax Act: The primary issue was whether payments made by the assessee to non-resident service providers for rendering installation and testing services constituted 'fees for technical services' (FTS) under Section 9(1)(vii) and were subject to TDS under Section 195 of the IT Act. The Assessing Officer (AO) disallowed these payments for non-deduction of TDS, arguing that the services rendered fell within the ambit of FTS and were taxable in India. However, the CIT(A) deleted the disallowance, holding that the payments fell under the exception to Section 9(1)(vii)(b) as the services were utilized in a business carried on outside India or for earning income from a source outside India. The Tribunal upheld the CIT(A)'s decision, stating that the payments did not qualify as FTS under the India-USA DTAA's 'make available' clause and were not taxable in India. Disallowance of Bad Debts: For the assessment year 2010-11, the AO disallowed the assessee's claim for bad debts written off, arguing that the income pertaining to these bad debts was not offered in the computation of total income for previous years. The CIT(A) directed the AO to verify if the amounts claimed as bad debts were included in the income for earlier years. The Tribunal upheld the CIT(A)'s decision, noting that the conditions prescribed under Section 36(2) were satisfied as the income had been offered to tax in earlier years. Disallowance of Provision for Expenses: For the assessment years 2012-13 and 2013-14, the AO disallowed provisions made for expenses under professional charges, considering them contingent liabilities. The CIT(A) upheld the AO's decision. The Tribunal also upheld the disallowance, stating that the assessee failed to provide evidence that the liability had arisen in the relevant assessment year and that the provision was unascertained and not crystallized. Disallowance of Employees' Contribution to PF & ESI: For the assessment year 2017-18, the AO disallowed belated payments of employees' contributions to PF & ESI under Section 36(1)(va) r.w.s. 2(24)(x) and 43B. The CIT(A) deleted the disallowance. However, the Tribunal reversed the CIT(A)'s decision, relying on the Supreme Court's ruling in Checkmate Services P. Ltd., which held that belated payments of employees' contributions to PF & ESI are not deductible. Conclusion: - Appeals filed by the revenue for assessment years 2010-11, 2012-13, 2013-14, and 2016-17 were dismissed. - The appeal filed by the revenue for assessment year 2017-18 was partly allowed. - Appeals filed by the assessee for assessment years 2012-13 and 2013-14 were dismissed.
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